The State Pension will rise by 8.5% in April in line with the triple lock pledge, the Chancellor confirmed in his Autumn Statement, bringing some relief for pensioners on low incomes.
There was good news for workers too, with a 2% cut to National Insurance, although many people will still face steep tax bills thanks to the ongoing freeze in income tax and National Insurance tax thresholds.
Here, we look at some of the main measures announced in the Autumn Statement, and the effect they’re likely to have on your finances.
National Insurance and income tax
The ‘rabbit out of the hat’ in this year’s Autumn Statement was a reduction in National Insurance, providing much-needed help for around 27 million workers who continue to face high living costs.
The Chancellor announced a 2% cut to the current Class 1 National Insurance 12% rate, which will mean an average saving of £149 a year for those earning £20,000, £349 for someone earning £30,000, £549 for someone earning £40,000, £749 for someone earning £50,000 and £754 for anyone earning over the higher rate threshold.
Rather than this change coming into effect at the start of the new tax year next April, the Chancellor said he was introducing urgent legislation so that it could be introduced in just a few weeks time on January 6.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “For those struggling under a massive tax burden, the National Insurance cut will bring real relief. A 2% cut isn’t to be sniffed at, and, at this stage, taxpayers aren’t going to look a gift horse in the mouth. By focusing on National Insurance, it limits the income boost to workers under State Pension age, so there would be no tax cut for pensioners.”
The Chancellor also announced cuts to National Insurance for self-employed people – abolishing Class 2 National Insurance, and cutting Class 4 National Insurance by one percentage point from 9% to 8% from April. According to the government, this will result in an average total saving of around £350 for someone earning £28,000 a year.
Despite the National Insurance reduction, most people will end up only marginally better off next year, due to the freezing of tax allowances and what is known as ‘fiscal drag’. Fiscal drag is the process by which people end up paying more tax when tax rates and thresholds are frozen, as they earn more and their assets rise in value.
The current tax thresholds are £12,570 (basic rate), £50,270 (higher rate), and £125,140 (additional rate).
The now Prime Minister Rishi Sunak previously froze income tax thresholds until April 2026 when he was Chancellor, but Jeremy Hunt last year extended this for another two years – taking it to April 2028, and raking in around £4bn a year for the Treasury.
State Pension
The Chancellor announced several measures to support pensioners reliant on the State Pension, most importantly that the pension triple lock will remain in place for the time being. The triple lock guarantees that the basic and new State Pension will rise each year by the greatest of the following three figures:
- 2.5%
- The rate of inflation in September, or the rate at which the cost of goods and services increases by, as measured by the Consumer Prices Index (CPI)
- Average earnings growth, as measured by the Office for National Statistics (ONS).
This means that next April, the State Pension will increase by 8.5%, or average earnings growth, as this is the highest of the three figures above. Someone on a new full State Pension will see it increase from £203.85 a week this year to £221.20 a week next year, while the old basic state pension will rise by £13.30 per week or £691.60 per year, to £169.50 a week.
Jamie Jenkins, director of policy and communications at Royal London, said: “The triple lock has proved a lifeline for pensioners struggling to keep their heads above water amid the greatest cost of living shock in modern times.
“In committing to an 8.5% hike, the Chancellor has honoured the government’s pledge and offered reassurance to millions that they will be able to stay ahead of the inflation curve for the short-term at least.”
Find out more about how the pension triple lock works in our guide What is the pension triple lock? and about the State Pension more generally in our guide How the State Pension works.
'Pot for life' pension
People should be allowed to choose a pension provider and pension that they contribute to throughout their working lives, the Chancellor proposed. This pension can be taken with them when they change jobs, so that they essentially retain the same pension throughout their lifetimes.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Lifetime pensions give people the power to manage their financial futures. With people moving jobs much more frequently, they will be less likely to lose track of pensions from previous employers and having an overarching view of what they have accumulated can help them make more informed retirement decisions.
“There will of course be administrative challenges to be faced in terms of getting the systems in place to ensure contributions are paid to the right pension, but payroll solutions already exist and can be adapted to meet these challenges.”
You can find out more about how pension ‘pots for life’ are likely to work in our guide What are pension ‘pots for life’ and how will they work?
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Benefits
Working age means-tested benefits, including Universal Credit, will rise in line with September’s inflation figure of 6.7% from next April, the Chancellor announced.
The Universal Credit taper rate was cut from 63p to 55p in December 2021. The taper rate withdraws support from Universal Credit gradually as people work more hours. This means that for every £1 earned, sometimes above a certain threshold, known as the work allowance, their Universal Credit payment is reduced by 55p – meaning workers only take home 45p of each extra pound they earn.
Find out more about Universal Credit and whether you might be eligible to claim it in our guide Everything you need to know about Universal Credit.
Pension Credit, however, will be uprated by 8.5% next year, in line with the triple lock. This means that Pension Credit for a single person will rise from £201.05 to £218.15, while for a couple it will rise from £306.85 to £332.95.
Find out more about Pension Credit and eligibility requirements in our guide Pension Credit explained. If you think you might be eligible to claim it, you can make a claim by phone using the Pension Credit claim line on 0800 99 1234. If you’d rather make a paper application, you can request one on the above number, or you can download and print a Pension Claim form here.
Cost of living crisis
The government has fulfilled its pledge to halve inflation by the end of this year, with the Office for National Statistics announcing earlier this month that it eased to 4.6% in the 12 months to October. However, it is still more than double the government’s 2% target. Find out more in our articles and What does inflation mean for my money?
The Chancellor didn’t announce any further measures in the Autumn Statement to help households with the immediate pressures of rising household bills. You can read about previously announced support in our article Date of second cost of living payment announced.
The current £1,834 energy price cap, which applies to the average household with typical energy usage, will remain in place until next January at which point it will increase by around 5% to £1,928.
The price cap, which was introduced by the energy regulator Ofgem in 2018, limits what a supplier can charge on their standard variable, or default, tariff. The cap is based on the price per kWh of electricity and gas that can be charged. There isn’t, however, a limit on total bills, as these depend on usage, so those who live in large properties or who consume a large amount of energy could well see annual bills much higher than £1,928 next year.
Our articles The energy bills crisis: what can you do about soaring costs? and
How to save money – 21 money saving tips suggest ways to keep energy and other household bills down.
For those struggling to cover rental costs, the Chancellor announced plans to increase the Local Housing Allowance rate to cover the lowest 30% of rents from April. This will benefit an estimated 1.6 million households, bringing them an average gain of £800 in 2024/25.
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Dividend Allowance and Capital Gains Tax annual exempt amount
As announced previously in the Chancellor’s Spring Budget, the Capital Gains Tax (CGT) allowance and the Dividend Allowance will both be reduced from the start of the new tax year next April. The annual exemption for gains, which is currently £6,000, will fall to £3,000 from April 2024. You can find out more about how Capital Gains Tax works in our guide What is Capital Gains Tax and how do I pay it?
The tax-free dividend allowance will fall from £1,000 to £500 from April 2024.
Individual Savings Accounts (ISAs)
Buried in the Budget small print, there were various changes to ISAs announced that are due to come into effect from April next year.
These include people being able to make multiple subscriptions to ISAs of the same type every year from April 2024. The government will also allow partial transfers of ISA funds in-year between providers from April 2024.
Fractional shares will also be permitted in ISAS. Myron Jobson, senior personal finance analyst at interactive investor, said: “For retail investors who may be saving less than £100 a month, it becomes very difficult for them to invest directly in shares while also building a properly diversified portfolio. There are around two dozen shares in the FTSE 100 with a price of over £20, while Astrazeneca shares cost around £90 each.
“A simple technical adjustment to permit fractional shares, incurring no cost to the Treasury, levels the playing field and empower investors of all sizes to participate in the market and, in turn, contribute to the expansion of the British economy.”
Inheritance Tax threshold remains frozen
Despite widespread speculation that the Chancellor might reform Inheritance Tax (IHT) in this year’s Autumn Statement, the threshold at which it becomes payable will remain frozen at £325,000 until April 2028. It has been at this level since April 2009.
There is also the residence nil rate band, which provides an additional IHT allowance of £175,000 that can be claimed where the family home is inherited by children or grandchildren.
Rising house prices over the past few decades have dragged an increasing number of estates into the IHT net. According to the Institute for Fiscal Studies (IFS) currently around 4% of estates pay Inheritance Tax equivalent to £7 billion, but this is expected to rise within the next 10 years to 12% of estates and £15 billion of receipts.
Inheritance tax is often known as the ‘voluntary tax’ as there are various allowances which people may be able to use to reduce any potential liability. Find out more in our guides Which gifts are exempt from Inheritance Tax? and Six ways to reduce inheritance tax bills. You can learn more about how Inheritance Tax works in our article Understanding Inheritance Tax.
National Living Wage
The National Living Wage will rise from £10.42 an hour for over-23s to £11.44 from April next year, the Chancellor said, representing an annual pay rise worth over £1,800 to a full time worker.
This increase will also apply to 21 and 22 year-olds for the first time, giving them an effective £2,300 annual rise.
The current minimum wage for those aged 21-22 is £10.18 an hour. The separate National Minimum Wage for 18-20-year-olds will also rise, from £7.49 an hour to £8.60 an hour.
Fuel Duty
The Chancellor froze fuel duty for the thirteenth consecutive year. Had he reversed the 5p fuel duty cut this week, then once VAT is added on at the pump, customers would have seen a 4% increase in costs, equivalent to around an extra 6p a litre on the price of fuel.
Alcohol and tobacco
Alcohol duty in the UK has been frozen until August 2024, the Chancellor announced. Sarah Coles, head of personal finance at Hargreaves Lansdown said; “There had been fears of an RPI rise in alcohol duties in the Autumn Statement, which could have pushed up the price of a bottle of red wine to £8. The announcement of a freeze in duty will give drinkers something to cheer.
“It doesn’t mean drinkers are off the hook though. Inflation figures out earlier this month showed that the price of fortified wines is up 15.3% and beer is up 12%, thanks in part to higher alcohol duty. It means raising a glass this Christmas will still be an expensive business.”
The price of a packet of cigarettes will increase by RPI (retail price inflation) of 10.1% – plus an extra minimum 2% meaning an over 12% increase overall. This will bump up the cost of a packet of 20 cigarettes by around £1.55.
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